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And Now, For Creative's Next Trick...

September 10, 1995

Information Processing: PERIPHERALS

AND NOW, FOR CREATIVE'S NEXT TRICK...

In the West, Sim Wong Hoo's name may not be up there in the pantheon of high-tech luminaries. But in his native Singapore, the chief executive of Creative Technology Ltd. is a celebrity. Sim has starred in a "do you know me" American Express Co. ad, became the basis of a soap opera character, and is lauded as a role model by the government. No wonder: In 14 years, Sim has turned a $6,000 investment into a $1.2 billion powerhouse, mainly with Sound Blaster, an add-in card featured in 70% of all multimedia PCs used in the U.S.

But the latest chapter in the Creative story is less triumphant. Sales of Sound Blaster are still growing, but margins are shrinking. Forays into new areas have proved disappointing: Sim has written off millions on stakes in voice-processing, modem, and CD-ROM companies. Co-founder Ng Kai Wa, Sim's friend since second grade, recently quit. In the quarter ended Aug. 4, the company reported a $24 million loss as a result of write-offs on inventory and bad investments. Creative's stock has dropped more than 40% since last September, to $10.50. "The sound-card business is slipping away," says John T. Rossi of Robertson Stephens & Co. "They need to find their next big story."

Sim says he has it: On Aug. 16, Creative unveiled the 3D Blaster, an add-in board that uses a special processor to give PCs near-TV-quality graphics. The kits, priced at around $300, include six games to show off the technology. Sim says he'll sell 1 million units the first year: "It feels like Sound Blaster all over again."

OPEN FIELD. Repeating that success will not be easy. When he launched his sound cards in the late 1980s, Sim set the standard for PC audio. But with 3-D graphics, the standards are being set by Microsoft Corp.'s Windows 95. That opens the field to just about anybody. Already, creators of games are writing for PC cards being developed by such rivals as San Jose (Calif.)-based Diamond Multimedia, for example. "Everyone and his brother will be getting into this business in the coming months," says Jay M. Wilbur, chief executive of id Software Inc., developer of the megahit Doom.

Keeping ahead of the rapidly evolving chip technology is also getting harder. Competitors are partnering with such hot Silicon Valley chipmakers as 3Dfx Interactive Inc. and Nvidia Corp. With Nvidia's chip, Diamond plans to market a single card with 3-D graphics, sound, and video this fall. Creative says it will have an all-in-one board ready next year; for now, users of 3D Blaster will also need Sound Blasters.

What the company has in spades is market momentum: 12 million Sound Blaster customers and 30,000 retail outlets. "They've got a lock on the shelf space," says analyst Rossi, who expects the stock to rebound to $12 by yearend.

What it lacks is fat profits. Creative still sells some 1 million Sound Blasters a month, but many are simply chips sold directly to PC makers. Sim is bracing for slower growth by revamping product development and trimming costs. "We need to work through these difficult times and build on the next generation of technology," says Sim. "What's important is to survive." How 3D Blaster fares in the market could determine whether that happens.By Peter Burrows in San Francisco, with Helen Chang in Singapore